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Fourth Quarter & Full Year 2019 Investor Presentation
March 3, 2020
Forward Looking Statements and Non‐GAAP Financial Measures
Statements and information in this presentation that are not historical are forward‐looking statements within themeaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the “safe harbor”provisions of such Act.
Forward‐looking statements include, but are not limited to, statements regarding our outlook, guidance,expectations, beliefs, hopes, intentions and strategies. These statements are subject to a number of risks,uncertainties, assumptions and other factors including those identified below. All forward‐looking statements arebased on information available to us at the time the statements are made. We undertake no obligation to updateany forward‐looking statements, whether as a result of new information, future events or otherwise, except asrequired by law.
You should not place undue reliance on our forward‐looking statements. Actual events or results may differmaterially from those expressed or implied in the forward‐looking statements. The risks, uncertainties,assumptions and other factors that could cause actual results to differ from the results predicted or implied by ourforward‐looking statements include the factors disclosed under the captions “Risk Factors” and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10‐K forthe year ended December 31, 2019. The report is available on our investor relations website at lkqcorp.com andon the SEC website at sec.gov.
This presentation contains non‐GAAP financial measures. Included with this presentation is a reconciliation ofeach non‐GAAP financial measure with the most directly comparable financial measure calculated in accordancewith GAAP.
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Mission Statement
3
To be the leading global value‐addeddistributor of vehicle parts and accessories
by offering our customers the mostcomprehensive, available and cost effectiveselection of part solutions while building
strong partnerships with our employees andthe communities in which we operate
Today’s Agenda
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LKQ Today
LKQ’s Strategy to Drive Shareholder Value
Engaged Board with Strong Governance Practices
LKQ Business Overview
Concluding Remarks
$248 $374 $388 $347 $465
$798
2014 2015 2016 2017 2018 2019
Overview of LKQ
5
LKQ is a global distributor of vehicle products, including replacement parts, components and systems used in repair and maintenance of vehicles and specialty products and accessories
Founded in 1998 through a combination of wholesale recycled products businesses, which subsequently expanded through organic growth and ~280 acquisitions of aftermarket, recycled, refurbished and remanufactured product suppliers
Customers are primarily wholesale collision and mechanical DIFM shops
Organized into three reportable segments: North America, Europe and Specialty
~1,700 facilities, including roughly 550 in the U.S. and 1,150 in over 25 other countries with ~51,000 employees (21,000 in North America)
1) Represents Parts and Services organic growth.2) Segment EBITDA reflects continuing operations only. It is a non‐GAAP measure. 3) Free cash flow amount only includes free cash flow generated by continuing operations and is defined as cash flow from operations less capital expenditures. It is a non‐
GAAP measure.
North America41%
Europe47%
Specialty12%
Revenue ($mm)
$6,740 $7,193 $8,584 $9,737 $11,877 $12,506
2014 2015 2016 2017 2018 2019
OrganicGrowth(1) 9.0% 4.1% 4.4%7.0% 4.8% 0.3%
Segment EBITDA(2) ($mm)
$791 $855 $1,005 $1,117 $1,251 $1,328
2014 2015 2016 2017 2018 2019
EBITDA Margin 11.7% 11.5% 10.5% 10.6%11.9% 11.7%
Free Cash Flow(3) ($mm)
Company Overview Financial Performance
Revenue by Segment
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14%
21%
1%
47%
12%5%
OtherSpecialtyEuropeanOperations
Self Service PartsNorth America
AftermarketNorth America
Recycled ProductsNorth America
2003 2007 2011 2019
Total Revenue$3.27 billion
Total Revenue$12.5 billion
Total Revenue$1.11 billion
Total Revenue$328 million
WholesaleSalvage
1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20182014 201720162015 2019
Keystone/PaintSelf Serve Remanufactured
US Europe‐Sator Europe‐Rhiag
Heavy DutyRefurbishedWheels Europe‐ECP Keystone/
SpecialtyEurope –
StahlgruberAftermarketCollision
53% North America
LKQ has grown from a North American collision operation to a globally diversified aftermarket distributor
Over 15 Years of Growth
Services
LKQ Near‐Term Objectives
Creating “1 LKQ Europe”
Simplifying and integrating European operations and achieving European segment EBITDA margins by 2021 in a range of 9.5%(1) to 11.1%(1) through cost savings in procurement, product strategy, revenue management and local initiatives
Driving North American organic growth and profitability
Expanding product offerings, optimizing pricing and data‐driven procurement
Specialty segment growth plan
Focused on new product lines and services, as well as targeting new customers, increased penetration of existing customers and extension of exclusive brand and online fulfillment offering
Focused capital allocation strategy
Transitioning from emphasis on building scale through acquisitions to enabling organic growth, de‐levering and returning capital to shareholders
Governance initiatives
Including compensation structure and continual Board refreshment, evidenced by the appointment of five new Independent Directorsduring the last three years
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Executing on a plan to consistently create shareholder value by transforming LKQ into an integrated global vehicle replacement parts distributor
Recent results underscore that plan is working and that we have a clear trajectory towards our targets
1
2
3
4
5
1) Includes the negative impact of estimated transformation costs of 0.6% to 0.8%.
Today’s Agenda
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LKQ Today
LKQ’s Strategy to Drive Shareholder Value
Engaged Board with Strong Governance Practices
LKQ Business Overview
Concluding Remarks
Significant Market Opportunity for LKQ in the US and Europe
9
US and Europe Market Opportunity (1,2,3)
Automotive Repair Market
Do It For Me (DIFM)
Collision
Collision Parts
Collision(Wholesale)
US Market Opportunity – $71 billionEurope Market Opportunity – €102 billion
DIY
Mechanical
Labor Mechanical Parts Labor
Markup
RetailPrice
Parts &Labor
Mechanical(Wholesale) Markup
1) Source: 2014 Datamonitor; Management estimates. 2) Source: AAIA Factbook, 27th Edition 2018; 2016 data is estimated, excludes tires.3) Note: All $ and € in billions; Excludes VAT and sales taxes.
US: $243 Europe: €198
US: $194 Europe: €188 US: $49 EU: €10
US: $46 Europe: €30 US: $148 Europe: €158
US: $25 Europe: €22 US: $21 EU: €8 US: $67 EU: €38 US: $81 Europe: €120
US: $8 EU: €8 US: $27 EU: €42 US: $17 EU: €14 US: $54 EU: €78
Aging Vehicles Coupled with Increasing Complexity and Cost of Repairs Contribute to Growth Opportunities
10
Source: Experian vehicles in operation as of 12/31/17; SAAR projections, Bank of America Merrill Lynch 1/8/18 and CCC Information Services.1) Number of parts per repairable claim.
(in millions)
Cost per Part CAGR: 0.8%Part per Claim CAGR: 2.8%
9.5 9.7 9.7 10.0 10.6
$119.3 $121.1 $121.8 $122.5 $123.4
2015 2016 2017 2018 2019
Number of Parts Cost Per Part(1)
121118
114108
103 101 101 101 103106
112117 119 118
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
United States Vehicles in Operation (between 3‐10 years old)
Cost per Part and Number of Parts 2015 – 2019
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…and Improved Cycle Time for Repairs
2013 Honda AccordHood
2012 Toyota CorollaHeadlamp
2014 Chevrolet SilveradoTransmission
New OEM $612 $228 $2,699
Remanufactured N/A $199 $2,299
Recycled OEM $440 $182 $1,150
New A/M $434 $173 N/A
Average Savings 29% 20% 36%
Clear Value Proposition
Note: Parts price only – excludes labor; the average savings percentages are for illustrative purposes.
12
Collision Products, a $17 Billion Industry in the US
Source: CCC Information Services – Crash Course 2018.
Repair ShopNew OEM
Manufacturers62%
Aftermarket21%
Recycled OEM11%
Refurbished & Optional OE Products
6%
Insurance Companies (Indirect Customers)
Alternative parts = 38% of parts costs
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Regional Distribution Improves Fulfilment
Highly fragmented space
20X size of next competitor
Consistent nationwide coverage and warranty
Strong management team
Strong logistics & footprint
Industry leading fill‐rates
Aftermarket: 95%
Salvage
Competitor: 25%
LKQ Single Site: 35%
LKQ Region: 75%
X
XX
M
M
M
X
M
York
Norfolk
LaGrange
Bristol
SalisburyCharlotte
Cades
Charleston
Knoxville
DuncanGreenville
RaleighGreensboro
CommerceX Monroe
Jenkinsburg
Macon SavannahColumbus
Dothan
BonifayJacksonville
Lake City
Orlando
Melbourne
West Palm Beach
Pompano BeachMiami
Fort Myers
Tampa
Crystal River
Montgomery
Mobile
New Orleans
Livingston
Baton Rouge
Jackson
Trafford
CullmanMemphis
JacksonNashville
ManchesterArdmore
Atlanta
Columbia
M
X
Salvage
Aftermarket
Co‐Located
Crossdock
Meeting Point
LKQ Europe Footprint Parc Size(1) Age of Fleet(2)
Germany 47.1 9.3
United Kingdom 36.0 7.8
Netherlands 8.6 10.4
Italy 39.0 10.8
CEE Region(3) 49.3 14.2
LKQ Europe Coverage 180.0 10.7
European Union 2013 – 2017 CAGR
282.12.0%
10.51.4%
Growing European Market with Aging Fleet
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Sources: Industry Sources, LKQ Analysis, European Automobile Manufacturers Association.1) Passenger and Light Commercial Vehicles as of 2019.2) As of 2016.3) Includes Czech Republic, Slovakia, Ukraine, Hungary, Poland, Romania.
1.5%
1.0%
2.5%
2020 — 2025 CAGR
Lower Range Higher Range
Expected Organic Growth for LKQ Europe 2020 — 2025 CAGR
(in millions)
Europe Total Vehicles in Operation
299 304 310 315 321 327 334 340 346 352 358 364 370 376
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
LKQ’s Business Model Supports Sustainable Growth in all Macro Environments
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Non‐Discretionary Niche and
Fragmented Markets
Industry Leading Management
High Fulfillment
Rates
Operating Leverage and Synergy Opportunities
Sustainable Growth and Margin Expansion
Attractive Adjacent Markets
Select North American Brands Select European Brands
$1,846 $1,995 $2,920
$3,637
$5,222 $5,838
9.1% 10.1%
9.7% 8.8% 8.1% 7.8%
2014 2015 2016 2017 2018 2019
Revenue % Segment EBITDA Margin
$834$1,082
$1,224 $1,306 $1,478 $1,464
10.3% 10.5%10.7% 10.9%
11.4% 11.0%
2014 2015 2016 2017 2018 2019
Revenue % Segment EBITDA Margin
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles
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$4,063 $4,119 $4,445 $4,800 $5,183 $5,209
13.2%13.1% 13.3% 13.7%
12.7%13.7%
2014 2015 2016 2017 2018 2019
Revenue % Segment EBITDA Margin
North America
Europe
Specialty
6.1%
Organic Growth
2.9% 3.0% 5.7%
16.1%
Organic Growth
7.2% 5.3% 2.9%
0.9%
0.1%
6.9% 4.7% 4.6% (0.7%)
9.2%
7.8%
5.6%
Organic Growth
Collision Aftermarket automotive products Automotive glass distribution Recycled & Refurbished
Mechanical Recycled engines & transmissions Remanufactured engines & transmissions
Mechanical 175,000+ small part SKUs Brakes, filters, hoses, belts, etc.
Collision Aftermarket (UK) & Recycled (Sweden)
Performance products Appearance & accessories RV, trailer & other Specialty wheels & tires
Product Overview Financial Overview
* 2019 Europe Segment EBITDA margin includes 20 basis points negative impact from transformation costs
*
$389 $544 $571 $523
$715
$1,064
$141 $170 $183 $176$250 $265
2014 2015 2016 2017 2018 2019Operating Cash Flow Capital Spending
Cash Flow/Capex Net Leverage
Overview of Consolidated Financial Performance
17
1) Amounts reflect continuing operations only.2) EBITDA is a non‐GAAP measure. Refer to EBITDA reconciliation on Appendix 2.3) Net leverage per bank covenants is defined as Net Debt / EBITDA. See the definitions of Net Debt and EBITDA in the credit agreement filed with the SEC for further details.
2.0x 1.7x
2.7x 2.7x 2.9x 2.6x
2014 2015 2016 2017 2018 2019
$6,740 $7,193$8,584
$9,737
$11,877 $12,506
2014 2015 2016 2017 2018 2019
$791 $855$1,005
$1,117$1,251 $1,328
2014 2015 2016 2017 2018 2019
($ in millions)
($ in millions)
($ in millions)
11.7% 11.7% 11.5% 10.5%11.9%EBITDA Margin 10.6%
Revenue Segment EBITDA
Consolidated Results ‐ Continuing Operations
Q4 2019 Revenue(1)
(1) Revenue in millions
• Organic revenue growth for parts and services was 0.9% on a reported basis
2019 Revenue(1)
• Organic revenue growth for parts and services was 0.3% on a reported basis
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Consolidated Results ‐ Continuing Operations
Q4 2019 EPS(1)
(1) Net income and earnings per share figures refer to net income from continuing operations attributableto LKQ stockholders(2) Adjusted Diluted EPS is a non‐GAAP measure. Refer to Appendix 4 for Adjusted Diluted EPS reconciliation(3) Segment EBITDA is a non‐GAAP financial measure. Refer to Appendix 3 for Segment EBITDA reconciliation
Diluted EPS Adjusted Diluted EPS(2)
• Net income from continuing operations attributable to LKQ stockholders of $140 million (4.7% of revenue) in Q4 2019 vs. $40 million (1.3% of revenue) in Q4 2018; up 247.0% YOY
• Q4 2018 includes impairment charges totaling $75 million after tax or ($0.23) per share• Segment EBITDA(3) of $313 million; up 8.8% YOY• Segment EBITDA Margin(3) of 10.4% in Q4 2019 vs. 9.6% in Q4 2018
2019 EPS(1)
Diluted EPS Adjusted Diluted EPS(2)
• Net income from continuing operations attributable to LKQ stockholders of $541 million (4.3% of revenue) in 2019 vs. $485 million (4.1% of revenue) in 2018; up 11.6% YOY
• 2019 includes impairment charges totaling $78 million after tax or ($0.25) per share vs. $97 million after tax or ($0.31) per share in 2018
• Segment EBITDA(3) of $1,328 million; up 6.2% YOY• Segment EBITDA Margin(3) of 10.6% in 2019 vs. 10.5% in 2018
$0.46
$0.13
$0.48
$0.54$1.53
$1.74
$2.19
$2.37
19
North America Segment EBITDA Margin Bridge
Change % of Revenue
($ in millions) 2019 2018 F/(U) 2019 2018
Total Revenue $5,209 $5,183 0.5%
Gross Margin $2,325 $2,243 3.7% 44.6% 43.3%
Operating Expenses $1,638 $1,599 (2.5)% 31.4% 30.8%
Other Income, net(1) $31 $13
Segment EBITDA(2) $713 $660 8.0% 13.7% 12.7%
North America – 2019 Results
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding
(1) 2019 includes a $12 million nonrecurring gain that is excluded from the calculation of Segment EBITDA.
(2) Segment EBITDA for each respective segment is a GAAP measure, while total Segment EBITDA is a non‐GAAP measure. Refer to Appendix 3 for total Segment EBITDA reconciliation and Appendix 2 for the breakout of Segment EBITDA for each respective segment.
13.7%
20
(1) Segment EBITDA for each respective segment is a GAAP measure, while total Segment EBITDA is a non‐GAAP measure. Refer to Appendix 3 for total Segment EBITDA reconciliation and Appendix 2 for the breakout of Segment EBITDA for each respective segment.
(2) Transformation expenses are period costs to execute the 1 LKQ Europe program that are expected to contribute to ongoing benefits to the business (e.g. non‐capitalized implementation costs related to a common ERP system). These expenses are recorded in Selling, general and administrative expenses.
Europe – 2019 Results
Europe Segment EBITDA Margin Bridge
Change % of Revenue
($ in millions) 2019 2018 F/(U) 2019 2018
Total Revenue $5,838 $5,222 11.8%
Gross Margin $2,112 $1,896 11.4% 36.2% 36.3%
Adjusted Gross Margin* $2,132 $1,896 12.4% 36.5% 36.3%
Operating Expenses $1,685 $1,484 (13.5)% 28.9% 28.4%
Other (Expense), net $(1) $(6)
Segment EBITDA(1) $454 $423 7.5% 7.8% 8.1%
Transformation Expenses $14 $3
Segment EBITDA(1) excluding Transformation Expenses(2) $468 $426 10.0% 8.0% 8.1%
Branches 1,093 1,102 (9)
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding*Adjusted Gross Margin is a non‐GAAP measure. Refer to Appendix 7 for Reconciliation of Gross Margin to Adjusted Gross Margin. Reported Gross Margin % change of 0.1% is negatively impacted by 0.3% for COGS related restructuring expenses which are excluded from the bridge above
7.8%
21
Specialty Segment EBITDA Margin Bridge
Change % of Revenue
($ in millions) 2019 2018 F/(U) 2019 2018
Total Revenue $1,464 $1,478 (0.9)%
Gross Margin $415 $436 (4.8)% 28.3% 29.5%
Operating Expenses $257 $270 4.6% 17.6% 18.2%
Other Income, net $1 $1
Segment EBITDA(1) $161 $169 (4.4)% 11.0% 11.4%
Specialty – 2019 Results
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding
(1) Segment EBITDA for each respective segment is a GAAP measure, while total Segment EBITDA is a non‐GAAP measure. Refer to Appendix 3 for total Segment EBITDA reconciliation and Appendix 2 for the breakout of Segment EBITDA for each respective segment.
11.0%
22
Free Cash Flow
Note: FCF amounts only include FCF generated by continuing operations* Free Cash Flow is a non‐GAAP measure. Refer to Appendix 6 for Free Cash Flow reconciliation** EBITDA is a non‐GAAP measure. Refer to Appendix 3 for EBITDA reconciliation
66%
42%
31%39%45%
32%
$ in millions
$389 $347
23
Leverage & Liquidity
Effective borrowing rate for Q4 2019 was 3.3%(3)
Total Capacity(1)
($ in millions )
2.9x
(1) Total capacity includes our term loans and revolving credit facilities(2) Net leverage per bank covenants is defined as Net Debt/EBITDA. See the definitions of Net Debt and EBITDA in the credit agreement filed with the SEC for further details(3) Including our interest rate swaps, approximately 85% of our outstanding debt at December 31, 2019 is effectively at a fixed interest rate(4) Borrowed roughly $300 million on the revolver in January 2020 to fund a portion of the $600 million U.S. notes redemption; remainder funded with other debt and approximately $200 million
in cash
($ in millions )
2.6x
$3,500 $3,491(4)
$4,348
$4,072
24
2020 Guidance Reflects Continued Focus on Operational Improvements
25
($ in millions except for EPS)
Full Year 2019Actual (1)
Full Year 2020Guidance(1)(2)
Organic Growth, Parts and Services 0.3% 0.50% ‐ 2.50%
Net Income attributable to LKQ stockholders $541 $678 ‐ $714
Adjusted Net Income attributable to LKQ stockholders(3) $736 $757 ‐ $793
Diluted EPS attributable to LKQ stockholders $1.74 $2.20 ‐ $2.32
Adjusted Diluted EPS attributable to LKQ stockholders(3) $2.37 $2.46 ‐ $2.58
Cash Flow from Operations $1,064 $1,000 ‐ $1,150
Capital Expenditures $266 $250 ‐ $300
(1) All actual and guidance figures are for continuing operations with the exception of cash flow from operations.
(2) Guidance for 2020 is based on current conditions and excludes the impact of restructuring and acquisition related expenses, impairment charges, excess tax benefits and deficiencies from stock based payments, amortization expense related to acquired intangibles, and gains and losses on debt extinguishment. In addition, it excludes gains or losses (including changes in fair value of contingent consideration liabilities) and capital spending related to acquisitions or divestitures, and assumes no material disruptions associated with the United Kingdom's recent announcement of its exit from the European Union or with the global supply‐chain from the coronavirus outbreak or other significant geopolitical events. Our forecasted results for our international operations were calculated using current foreign exchange rates for the remainder of the year. Guidance for 2020 includes a global effective tax rate of 27.5%. Full year 2019 actual figures for adjusted net income and adjusted diluted EPS were calculated using the same methodology as the 2020 guidance. Organic revenue guidance refers only to parts and services revenue. LKQ updated its guidance on February 20, 2020, and it is only effective on the date of issuance. It is LKQ’s policy to comment on its annual guidance only when the company issues its quarterly press releases with financial results. LKQ has no obligation to update this guidance.
(3) Adjusted net income and Adjusted Diluted EPS are non‐GAAP measures. See Appendix 5 for reconciliation of forecasted adjusted Net income and forecasted adjusted diluted EPS attributable to LKQ stockholders
LKQ Investment Highlights
26
Market Leader Growing Markets Diversified Revenue Base Demonstrated Performance
Leading Positions In Large Markets
Largest participant in each market served
Scale provides purchasing leverage and depth of inventory
European & Specialty expansion drives diversification
Opportunities for new locations & adjacent markets
Diversified Revenue Stream
Global balance with Pan‐European footprint
Multiple end markets Broad parts segment
exposure Self funded growth
Expanding Alternative Parts Usage
Increasing availability of quality aftermarket and recycled products
Distribution network and inventory levels allow higher fulfilment rates
Expanding number of vehicles comprising “sweet spot” in our target market
ClearValue Proposition
Insurers focused on controlling repair costs
Alternative products offer savings of 20%‐50% of OEM parts repairs
Best partner for insurance companies
Solid Financial Metrics
History of delivering organic revenue growth & EBITDA expansion
Strong FCF generation supports growth
Diversified capital structure
Limited near‐term structured debt repayments & ample liquidity
Today’s Agenda
27
LKQ Today
LKQ’s Strategy to Drive Shareholder Value
Engaged Board with Strong Governance Practices
LKQ Business Overview
Concluding Remarks
LKQ’s Plan to Drive Shareholder Value
28
Share gains in existing markets Greenfield / brownfield expansion projects (warehouse capacity and dismantling facilities) Consolidation within existing markets through the acquisition of smaller businesses (Stag & Parts Channel) Additional market penetration
Focused capital allocation strategy enabling organic growth, de‐levering & returning capital to shareholders
Enhanced European simplification through
“1 LKQ Europe”
Continued growth and profitability in North America segment
Focused capital allocation strategy
1
2
4
Driving further growth and profitability in Specialty segment
3
Expansion into new markets mostly complete Euro Car Parts (United Kingdom & ROI) Sator (Benelux & France) Rhiag (Italy & 9 other European countries) Stahlgruber (Germany & Eastern Europe)
Plan to integrate & drive margins
Higher penetration of proprietary & exclusive brands Pursue “marquee brands” within existing markets (e.g. Warn) OE warranty programs Facility & warehouse integration Pursue additional value‐added services through technology
29
1
21 Different Countries
Maintain Strong Entrepreneurial
Culture
Rationalized Product PortfolioCommon ERPPlatform
LKQ EuropeHeadquarters
29 ERP Systems
24 Financial Systems
50 Customer Portals
90 Private Label Brands
38 Phone Systems
15 E‐mail Systems
10 Catalogues
Fragmented Procurement and Product Management
Transformation
1
Unchanged Customer Experience…
…In the Hands of Local Managers
1 LKQ Europe: Simplification and Integration of EU Operations
30
1
LKQ is uniquely positioned to leverage its scale and capabilities in Europe
Procurement PrivateLabel
Revenue Optimization ERP
RevenueImpact
Complexity Reduction
CostReduction
CustomerValue
LeveragingLKQ Scale
Positive Impact Minimal Impact
1 LKQ Europe: Benefits from LKQ Europe Initiatives
LKQ Europe Expectations in 2021 and Beyond
1) Includes 30 bps negative impact from transformation costs.2) Includes 60‐80 bps negative impact from transformation costs.Note: Slide reflects figures presented on September 10, 2019.
7.8%
1.9%
0.2% 0.1%(0.5%)
9.5%
8.3%
2.2% 0.3%0.6%
(0.3%)
11.1%
Forecasted 2019Segment EBITDA
Margin(1)
Key Initiatives AssetRationalization
Organic Growth IncrementalTransformation
Costs
Expected 2021Segment EBITDA
Margin(2)
Forecasted2019 Segment
EBITDA Margin(1)
Expected 2021Segment EBITDA
Margin(2) Additional 0.5%–1.0%Segment EBITDA Margin Benefit
1
Procurement
Private Label
Centralization and Shared Services
Logistics
Digital Services
ERP
Potential Incremental RangeExpected Segment EBITDA Margin/Impact
LKQ Europe: Path to Sustainable Double Digit Segment EBITDA Margin Benefit of Initiatives Post 2021
31
Expected Benefit of Initiatives
1) Numbers may not foot due to rounding.Note: Slide reflects figures presented on September 10, 2019.
1
Potential Incremental RangeExpected Margin Benefit
0.7%
0.4%
0.3%
0.5%
1.9%
Procurement Product Strategy Revenue Optimization Local Initiatives Total Initiatives
0.8%
2.2%(1)
0.6%
0.5%
0.5%
LKQ Supplier Rebates
Indirect Spend Reduction
Pan‐European Supplier Pricing
Private Label Strategy
Catalog
Big Data
Yield Management
T2
Andrew Page Integration
Other Local Initiatives
LKQ Europe Initiatives’ Expected Segment EBITDA Benefit 2019–2021
32
8.5%9.5%
0.7%
(0.5%) (0.6%)
2018A1 2018A2 2019F1 2019F2 2020F1 2020F2 2021F1 2021F2
Expected Margin Progression Through 2021
Expected European Segment EBITDA Margin
Potential Range for Segment EBITDA Including Transformation Cost
Expected Segment EBITDA Margin Including Transformation Cost
Potential Range of Transformation Cost
Expected Impact of Transformation Cost
2021F2020F2019A2018A
8.1%7.8%
9.2%
11.1%
(0.2%)(0.7%) (0.8%)
33
Note: Slide reflects figures presented on September 10, 2019, except for full year 2019 actuals, which have been updated.
“1 LKQ Europe” Program Costs
34
Expected Cash Outlays 2019 – 2021 in $M(1)
Note: Cash outlays for the program between 2022‐2024 are expected to be in the range of $80M ‐ $100M in total.1) Local currency amounts translated to USD at current exchange rates.Note: Slide reflects figures presented on September 10, 2019.
Cost Definitions
Transformation‐related opex: Period costs incurred to execute the “1 LKQ Europe” project that are classified outside of restructuring expense and Capex. E.g. non‐capitalizable implementation costs for the new ERP, such as training and data conversion.
Transformation‐related capex: These are expenditures for long‐lived assets, such as software and facilities that directly relate to the “1 LKQ Europe” project and impact free cash flow, but are capitalized onto LKQ’s balance sheet. E.g. design and coding costs to implement the new ERP.
Restructuring expenses: Non‐recurring costs resulting directly from (i) the implementation of the “1 LKQ Europe” project from which the business will derive no ongoing benefit and (ii) efforts to eliminate underperforming assets and cost inefficiencies as previously announced during 2019. E.g. lease breakage costs when consolidating branches. Estimates in this presentation exclude one‐time gains or losses related to asset rationalizations.
Previously Announced:• Estimated restructuring charges of ~$20‐$23M for
cost reduction initiatives• Opex transformation costs of ~$7M in the YTD
June 2019 period• June 2019 life to date Capex for the ERP
implementation is $13M; Projected 2019 – 2025 Capex of ~$50‐$60M
2020
Capex
2019 2021 2019 – 2021 Total
Opex
Restructuring
$45–$55
$55–$65
$55–$65 $155–$185
Initiatives to Drive Cash Flow Generation 1
Trade Working Capital (TWC) improvement in Europe launched as a key objective in 2019, primarily driven by:
Supplier payment terms normalization, incl. vendor financing program
Stock level rationalization
Improved supply chain approach (e.g. Category management)
Past due receivables
Expectation that transformation costs will be entirely funded by the improved TWC performance
European segment’s annual direct spend is approximately $3.6 billion with ~1,800 suppliers with annualized spend >$23,000
The Top 40 suppliers ‐ key strategic partners ‐ represent 60% of the annual spend, or about $2.2 billion
Launched the European vendor financing program in 2019:
Initiated negotiations with the Top 40 suppliers in order to extend the average payment terms in line with market convention for customers of similar spend scale globally
Secured financing partners in key markets such as Germany, Italy and UK
Cash Flow Considerations Vendor Financing Program ‐ Update
35
36
2
Organic revenue & EBITDA improvement from initiatives
OrganicRevenue Growth
Margin Improvement
Operating Leverage
Favorable collision tailwinds Expansion of product offerings Monitoring opportunity of ADAS and EV
Further optimizing aftermarket and pricing
Salvage product pricing Continual improvement on our salvage
procurement Compensation tied more closely to
margin and Free Cash Flow improvement
Mitigate rising freight Roadnet – Phase 2 Increased use of our centralized back
office operations Heavy focus on employee retention &
talent recruitment
Collision & Mechanical
Aftermarket Salvage Glass Paint (PBE)
Key Initiatives A Great Stable of Brands
Multiple Levers to Drive North American Results
#1 Provider of:
Recycled & aftermarket collision parts Recycled & remanufactured engines and
transmissions Wholesale auto replacement glass
37
2
Maximum Bid $2,700.00
# of Parts Selected 31
Bid Value $5,363,02
Estimated COGS 50.25%
Estimated Margin $2,663.02
Select
Select
Part IC
NumberBid
ValueDamage Level
ENG 09535 $3,750.00 20%
TRA 01420 $730.00 60%
CRR 00195B $0.00 100%
RAX 00212C $1,212.50 10%
Auction
Salvage auction cars are loaded into bid databaseAutomated by LKQ
Bid & SelectionLKQ
ProprietaryBiddingSystemBID‐X
Sub‐Optimal Vehicle
Optimal Vehicle
OptimalParts
Sub‐Optimal Parts
Determine MarketValue of Parts to
Generate a Targeted Bid Price for the Vehicle
Bid value determined by supply, demand, variation, & condition
Vehicle Validation through Established Vehicle VIN
Databases
Bid StatisticsWon cars are towed to respective yards and
dismantled
Efficient & Scalable Salvage Procurement
Leading Brands and Multiple Levers to Drive Strong Specialty Growth
38
3
Market leading management team poised to deliver
NewProduct Lines
New product lines through the same distribution (target $25M/year)
New products within existing lines New services
NewCustomers
New customers (Jobbers, Dealers, Retailers, Installers), existing markets
New customers in adjacent space markets (e.g. Trailering, Hard Parts)
Increased Customer Penetration
Drive new and existing lines into new and existing customers (e.g. selling crossover truck accessory products to RV Dealers)
Company / Exclusive Brands
Pursue a greater percentage of business with proprietary products
Lead the Industry in On‐Line
Selling Fulfillment
The best solution to drop ship selling Drive new Parts Via program (click to
mortar)
Key Initiatives A Great Stable of Brands
Specialty Segment has Competitive Advantages3
Competitive Advantage Commentary
Logistics Network
North America – best coverage, next day
Late cut off times, 99.9% fill rate
Big & Bulky items
Company Fleet and Drivers (560 Cube Vans, 90 TT)
Best e‐tailer service option
Inventory Biggest ($320M)
Deepest (185K stocking SKU’s)
Transaction Processing
Daily relationship with customers (36K cust. loc.)
Customer Care (1.4M calls, 400K emails, etc)
AR / AP (4M Invoices, 800K Payments)
Product Data Set
Best Data in the industry
Most accurate YMM lookup
Going to mobile w/ VIN & License Plate lookup
Sales Team
Outside (60)
Inside (160)
Customer Support (60)
Customer Service (50)
Auto
RV
Nat’l Retail
Canada / Export
Technology e‐Keystone / Via (B2B)
Topline (DMS)
Magnifinder (service parts)
PartsVIA (click 2 Mortar)
39
Net Debt / EBITDA Over Time(1)
Strong Track Record of Delevering
1) Net leverage per bank covenants is defined as Net Debt / EBITDA. See the definitions of Net Debt and EBITDA in the credit agreement filed with the SEC for further details.
2) Rounded to nearest $10mm.
4
1.9x 2.0x
1.7x
2.0x
1.7x
2.7x 2.7x
2.9x
2.6x
2011
2012
2013
2014
2015
2016
2017
2018
2019
$400$470
$1,380
Transformative AcquisitionsNet Debt / EBITDA
Euro CarParts
KeystoneSpecialty
PGW/Rhiag
STAHLGRUBER
$660
$1,150$250
Represents size of acquisition ($mm)(2)
40
Within five quarters following the company's largest‐ever transaction, we got back to the Stahlgruber pre‐acquisition leverage ratio
Warn Industries
Sator
$270
Today’s Agenda
LKQ Today
LKQ’s Strategy to Drive Shareholder Value
Engaged Board with Strong Governance Practices
LKQ Business Overview
Concluding Remarks
41
Independent Leadership & Oversight
LKQ is governed by 11‐member board of directors, 9 of whom are independent directors under NASDAQ guidelines
Separate Chairman / CEO roles
Continued Focus on Board Refreshment
Ongoing process to refresh and strengthen board composition with shareholder input; 5 new independent directors added in the past 3 years
The average tenure of board is ~6 years
Appointed Patrick Berard and Xavier Urbain to its Board of Directors in 2019, as part of the Board’s ongoing refreshment process
A. Clinton Allen and William M. Webster, IV have announced that they will retire from the Board when their terms expire in connection with the Company’s 2020 Annual Meeting
Structured to Empower
Shareholder Rights
Annual election of directors
Majority voting standard (plurality carve‐out voting standard only in contested elections)
Proxy access provision
No poison pill in place
Corporate Governance Highlights
42
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation
43
DirectorExecutive Leadership
Automotive Industry
Digital Technology Operations
Treasury/Capital
Allocation/Corporate
Development
Finance/Accounting/Auditing
Government Relations/Regulatory
Human Capital Management/Compensation
Corporate Governance
Europe / Other
Experience
Supply Chain/Logistics
Risk Assessment
and Management
Investor Relations
Joseph Holsten
Dominick Zarcone
Patrick Berard
Meg Divitto
Robert Hanser
Blythe McGarvie
John Mendel
Jody Miller
John O'Brien
Guhan Subramanian
Xavier Urbain
Note: Only displays continuing directors. Excludes A. Clinton Allen and William M. Webster.
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation
44Note: Only displays continuing directors. Excludes A. Clinton Allen and William M. Webster.
Photo Name Years on Board Age Primary Occupation Key Skills Independent
Joseph Holsten 16 66 Chairman of the Board Unparalleled knowledge of LKQ business and industry
Dominick Zarcone 2 60 President and CEO Extensive finance experience
Patrick Berard(Effective October 2, ‘19)
<1 66 CEO and Director of Rexel Group Variety of leadership positions in European businesses
Meg Divitto 1 47 Principal of Divitto Design Group Expertise in technology and IoT
Robert Hanser 4 63 Retired from Robert Bosch GmbH Worked at Bosch for 23 years with extensive automotive aftermarket experience
Blythe McGarvie 7 62Retired Harvard Business School
professor CPA with experience in European operations
John Mendel 1 64 Retired EVP of American Honda Motor Company Automotive Division Knowledge on automotive industry
Jody Miller 1 60 CEO of Business Talent Group Diverse technology, automotive, and Board experience
John O'Brien 16 75 Retired CEO of Allmerica Financial Board experience and financial expertise
Guhan Subramanian 7 48 Professor of Law and Business at Harvard Business School
Knowledge on corporate governance and Board of Directors legal processes
Xavier Urbain(Effective December 9, ‘19)
<1 62Chairman of Caldic BV and previous
CEO at CEVA Logistics Significant global supply chain and logistics experience
Ongoing refreshment program that has resulted in five new independent directors added over last three years; total of nine directors added since 2012
Indicates Directors Who Have Joined the LKQ Board Since 2012
The Compensation Committee of LKQ’s board carefully considers the most effective ways to motivate and incentivize management to accomplish specific strategic goals
Objective, tailored metrics with challenging performance targets are chosen annually to align LKQ’s compensation program with its strategic plan and effectively align the interests of management with shareholders
In 2019, selected Adjusted EBITDA, EBITDA margin percentage and free cash flow as annual metrics to focus management on profitability and the optimization of cash flow
Furthermore in 2019, shifted 50% of the 3‐year incentive award from cash to performance based RSU. The metrics for the 3‐year incentive awards (both cash and equity) now include organic revenue growth, adjusted EPS and ROIC
No changes to the metrics for 2020 compensation plans
The interests of each of LKQ’s current board members and executives are closely aligned with the shareholders. Together, the LKQ directors and executive officers beneficially own more than 2,200,000 shares of LKQ common stock
All of LKQ’s compensation plans are designed to create a pay‐for‐performance culture and grant a high percentage of at‐risk compensation
45
The compensation program developed by the Compensation Committee is designed to drive shareholder value
LKQ’s Performance‐Based Compensation Practices
Today’s Agenda
46
LKQ Today
LKQ’s Strategy to Drive Shareholder Value
Engaged Board with Strong Governance Practices
LKQ Business Overview
Concluding Remarks
The Company delivered solid 2019 results, underscoring management’s focus on operating improvement and execution
Results since initiatives began in Q2 2018 include operating cash flows in 2019 of well over $1 billion, a record high for the Company
Continued strengthening of the balance sheet, with a 2.6x leverage ratio, comparable to leverage prior to the Stahlgruber acquisition
Deleveraging as part of a balanced capital allocation strategy, with the Company also committing to a new $500 million share repurchase program (having executed on $352mm of the first $500mm authorization)
Ongoing growth and profitability initiatives in place; the "1 LKQ Europe" plan announced in September provides a roadmap for improved profitability
Commitment to governance best practices, including the addition of 5 new independent directors in the past 3 years and better improved alignment of the compensation structure
47
LKQ's Management and Board are Executing on a Strategy That is Delivering Shareholder Value
Appendix ‐Non‐GAAP Financial Measures
This presentation contains non‐GAAP financial measures. Following are reconciliations of each non‐GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP.
Appendix 1 ‐Constant Currency Reconciliation
• The following unaudited table reconciles revenue growth for Parts & Services to constant currency revenue growth for the same measure:
We have presented the growth of our revenue on both an as reported and a constant currency basis. The constant currency presentation, whichis a non‐GAAP financial measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currencyrevenue information provides valuable supplemental information regarding our growth, consistent with how we evaluate our performance, asthis statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operationalperformance. Constant currency revenue results are calculated by translating prior year revenue in local currency using the current year'scurrency conversion rate. This non‐GAAP financial measure has limitations as an analytical tool and should not be considered in isolation or as asubstitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly‐named measures byother issuers due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition,not all companies that report revenue growth on a constant currency basis calculate such measure in the same manner as we do and,accordingly, our calculations are not necessarily comparable to similarly‐named measures of other companies and may not be appropriatemeasures for performance relative to other companies.
Three Months Ended December 31, 2019
Year Ended December 31, 2019
Consolidated Europe Consolidated Europe
Parts & Services
Revenue growth as reported 0.1% (0.1)% 5.7% 11.8%
Less: Currency impact (1.0)% (2.0)% (2.2)% (4.6)%
Revenue growth at constant currency 1.1% 1.9% 7.9% 16.4%
Appendix 2 ‐Revenue and Segment EBITDA by segment
Three Months Ended December 31(1)
Year Ended December 31(1)
(in millions) 2019% of
revenue 2018% of
revenue 2019% of
revenue 2018% of
revenue
Revenue
North America $1,283 $1,255 $5,209 $5,183
Europe 1,425 1,426 5,838 5,222
Specialty 303 323 1,464 1,478
Eliminations (1) (1) (5) (5)
Total Revenue $3,010 $3,003 $12,506 $11,877
Segment EBITDA
North America $180 14.0% $153 12.2% $713 13.7% $660 12.7%
Europe 108 7.6% 107 7.5% 454 7.8% 423 8.1%
Specialty 25 8.4% 28 8.5% 161 11.0% 169 11.4%
Total Segment EBITDA $313 10.4% $288 9.6% $1,328 10.6% $1,251 10.5%
We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our segment profit and loss and underlying trends in our ongoing operations. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold), change in fair value of contingent consideration liabilities, other gains and losses related to acquisitions, equity method investments or divestitures, equity in losses and earnings of unconsolidated subsidiaries, and impairment charges. EBITDA, which is the basis for Segment EBITDA, is calculated as net income, less net income (loss) attributable to continuing and discontinued noncontrolling interest, excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. This financial measure is included in the metrics used to determine incentive compensation for our senior management. We also consider Segment EBITDA to be a useful financial measure in evaluating our operating performance, as it provides investors, securities analysts and other interested parties with supplemental information regarding the underlying trends in our ongoing operations. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. Refer to the table on the following page for a reconciliation of net income to EBITDA and Segment EBITDA.
(1) The sum of the individual components may not equal the total due to rounding
Appendix 3 ‐Reconciliation of Net Income to EBITDA and Segment EBITDA
Three Months Ended December 31 Year Ended December 31(in millions) 2019 2018 2019 2018
Net income $141 $38 $545 $483
Subtract:
Net income attributable to continuing noncontrolling interest 0 2 3 3
Net income attributable to discontinued noncontrolling interest 0 — 1 —
Net income attributable to LKQ stockholders $140 $36 $541 $480
Subtract:
Net income (loss) from discontinued operations 0 (4) 2 (4)
Net income attributable to discontinued noncontrolling interest (0) — (1) —
Net income from continuing operations attributable to LKQ stockholders $140 $40 $541 $485
Add:
Depreciation and amortization 77 78 291 274
Depreciation and amortization ‐ cost of goods sold 5 5 21 20
Depreciation and amortization ‐ restructuring expenses ‐ cost of goods sold 0 — 0 —
Depreciation and amortization ‐ restructuring expenses 1 — 2 —
Interest expense, net of interest income 32 37 136 145
Loss (gain) on debt extinguishment — 1 (0) 1
Provision for income taxes 50 35 215 191
EBITDA $307 $197 $1,206 $1,116
Subtract:
Equity in earnings (losses) of unconsolidated subsidiaries 1 (46) (32) (64)
Fair value loss on Mekonomen derivative instrument — (8) — (5)
Gain due to resolution of acquisition related matter 12 — 12 —
Gains on bargain purchases and previously held equity interests 1 2 1 2
Add:
Restructuring and acquisition related expenses (2) 15 6 35 32
Restructuring expenses ‐ cost of goods sold 4 — 21 —
Inventory step‐up adjustment ‐ acquisition related — — — 0
Impairment of net assets held for sale and goodwill 2 33 47 36
Change in fair value of contingent consideration liabilities 0 0 0 (0)
Segment EBITDA $313 $288 $1,328 $1,251
Net income from continuing operations attributable to LKQ stockholders as a percentage of revenue 4.7% 1.3% 4.3% 4.1%
EBITDA as a percentage of revenue 10.2% 6.6% 9.6% 9.4%
Segment EBITDA as a percentage of revenue 10.4% 9.6% 10.6% 10.5%
Appendix 3 ‐EBITDA and Segment EBITDA Reconciliation
We have presented EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties usefulinformation to evaluate our operating performance and the value of our business. We calculate EBITDA as net income, less net income(loss) attributable to continuing and discontinued noncontrolling interest, excluding discontinued operations and discontinuednoncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income taxexpense. EBITDA provides insight into our profitability trends and allows management and investors to analyze our operating results withthe impact of continuing noncontrolling interest and without the impact of discontinued noncontrolling interest, discontinued operations,depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. We believe EBITDAis used by investors, securities analysts and other interested parties in evaluating the operating performance and the value of othercompanies, many of which present EBITDA when reporting their results.
We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interestedparties useful information to evaluate our segment profit and loss and underlying trends in our ongoing operations. We calculate SegmentEBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost ofgoods sold), change in fair value of contingent consideration liabilities, other gains and losses related to acquisitions, equity methodinvestments or divestitures, equity in losses and earnings of unconsolidated subsidiaries, and impairment charges. Our chief operatingdecision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use SegmentEBITDA to compare profitability among our segments and evaluate business strategies. This financial measure is included in the metricsused to determine incentive compensation for our senior management. Segment EBITDA includes revenue and expenses that arecontrollable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with sharedexpenses apportioned based on the segment's percentage of consolidated revenue.
EBITDA and Segment EBITDA should not be construed as alternatives to operating income, net income or net cash provided by operatingactivities, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companiesthat report EBITDA or Segment EBITDA information calculate EBITDA or Segment EBITDA in the same manner as we do and, accordingly,our calculations are not necessarily comparable to similarly‐named measures of other companies and may not be appropriate measures forperformance relative to other companies.
Appendix 4 –Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations
Three Months EndedDecember311)
Year EndedDecember 31(1)
(in millions, except per share data) 2019 2018 2019 2018
Net income $141 $38 $545 $483
Subtract:
Net income attributable to continuing noncontrolling interest 0 2 3 3
Net income attributable to discontinued noncontrolling interest 0 — 1 —
Net income attributable to LKQ stockholders $140 $36 $541 $480
Subtract:
Net income (loss) from discontinued operations 0 (4) 2 (4)
Net income attributable to discontinued noncontrolling interest (0) — (1) —
Net income from continuing operations attributable to LKQ stockholders $140 $40 $541 $485
Adjustments ‐ continuing operations attributable to LKQ stockholders:
Amortization of acquired intangibles 31 38 125 127
Restructuring and acquisition related expenses 16 6 37 32
Restructuring expenses ‐ cost of goods sold 4 — 21 —
Inventory step‐up adjustment ‐ acquisition related — — — 0
Change in fair value of contingent consideration liabilities 0 0 0 (0)
Gains on bargain purchases and previously held equity interests (1) (2) (1) (2)
Loss (gain) on debt extinguishment — 1 (0) 1
Gain due to resolution of acquisition related matter (12) — (12) —
Impairment of net assets held for sale and goodwill 2 33 47 36
Impairment of equity method investments 2 48 41 71
Fair value loss on Mekonomen derivative instrument — 8 — 5
U.S. tax law change 2017 — — — (10)
Excess tax benefit from stock‐based payments (1) (1) (3) (5)
Tax effect of adjustments (14) (21) (60) (49)
Adjusted net income from continuing operations attributable to LKQ stockholders $167 $151 $736 $691
Weighted average diluted common shares outstanding 307,303 318,510 310,969 315,849
Diluted earnings per share from continuing operations attributable to LKQ stockholders:
Reported $0.46 $0.13 $1.74 $1.53
Adjusted $0.54 $0.48 $2.37 $2.19
Appendix 4 ‐Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations
We have presented Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholdersas we believe these measures are useful for evaluating the core operating performance of our continuing business across reporting periods andin analyzing our historical operating results. We define Adjusted Net Income and Adjusted Diluted Earnings per Share from ContinuingOperations Attributable to LKQ Stockholders as Net Income and Diluted Earnings per Share adjusted to eliminate the impact of continuing anddiscontinued noncontrolling interest, discontinued operations, restructuring and acquisition related expenses, amortization expense related toall acquired intangible assets, gains and losses on debt extinguishment, the change in fair value of contingent consideration liabilities, othergains and losses related to acquisitions, equity method investments or divestitures, impairment charges, excess tax benefits and deficienciesfrom stock‐based payments, adjustments to the estimated tax reform provisions recorded in 2017 and any tax effect of these adjustments. Thetax effect of these adjustments is calculated using the effective tax rate for the applicable period or for certain discrete items the specific taxexpense or benefit for the adjustment. Given the variability and volatility of the amount and frequency of costs related to acquisitions,management believes that these costs are not normal operating expenses and should be adjusted in our calculation of Adjusted Net Incomefrom Continuing Operations Attributable to LKQ Stockholders. Our adjustment of the amortization of all acquisition‐related intangible assetsdoes not exclude the amortization of other assets, which represents expense that is directly attributable to ongoing operations. Managementbelieves that the adjustment relating to amortization of acquisition‐related intangible assets supplements the GAAP information with a measurethat can be used to assess the comparability of operating performance. The acquired intangible assets were recorded as part of purchaseaccounting and contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periodsuntil such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets.These financial measures are used by management in its decision making and overall evaluation of our operating performance and are includedin the metrics used to determine incentive compensation for our senior management. Adjusted Net Income and Adjusted Diluted Earnings perShare from Continuing Operations Attributable to LKQ Stockholders should not be construed as alternatives to Net Income or Diluted Earningsper Share as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies thatreport measures similar to Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQStockholders calculate such measures in the same manner as we do and, accordingly, our calculations are not necessarily comparable tosimilarly‐named measures of other companies and may not be appropriate measures for performance relative to other companies.
Appendix 5 ‐Forecasted EPS Reconciliation(1)
For the year ending December 31, 2020
(in millions, except per share data) Minimum Guidance Maximum Guidance
Net income from continuing operations attributable to LKQ stockholders $678 $714
Adjustments:
Amortization of acquired intangibles 96 96
Loss on debt extinguishment 13 13
Tax effect of adjustments (30) (30)
Adjusted net income from continuing operations attributable to LKQ stockholders $757 $793
Weighted average diluted common shares outstanding 308 308
Diluted EPS from continuing operations attributable to LKQ stockholders:
U.S. GAAP $2.20 $2.32
Non‐GAAP (Adjusted) $2.46 $2.58
(1) The sum of the individual components may not equal the total due to rounding
We have presented forecasted Adjusted Net Income and forecasted Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders in our financial guidance. Refer to the discussion of Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders for details on the calculation of these non‐GAAP financial measures. In the calculation of forecasted Adjusted Net Income and forecasted Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders, we included estimates of income from continuing operations attributable to LKQ stockholders, amortization of acquired intangibles for the full fiscal year 2020, the loss on debt extinguishment related to the January 2020 redemption of the U.S. Senior Notes and the related tax effect; we did not estimate amounts for any other components of the calculation for the year ending December 31, 2020.
Appendix 6 ‐Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
Three Months EndedDecember 31(1)
Year EndedDecember 31(1)
(in millions) 2019 2018 2019 2018
Net cash provided by operating activities $99 $190 $1,064 $711
Less: purchases of property, plant and equipment 100 78 266 250
Free cash flow $(1) $111 $798 $461
(1) The sum of the individual components may not equal the total due to rounding.
We have presented free cash flow solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our liquidity. We calculate free cash flow as net cash provided by operating activities, less purchases of property, plant and equipment. Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning our cash flow available to meet future debt service obligations and working capital requirements, make strategic acquisitions and repurchase stock. We believe free cash flow is used by investors, securities analysts and other interested parties in evaluating the liquidity of other companies, many of which present free cash flow when reporting their results. This financial measure is included in the metrics used to determine incentive compensation for our senior management. Free cash flow should not be construed as an alternative to net cash provided by operating activities, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report free cash flow information calculate free cash flow in the same manner as we do and, accordingly, our calculation is not necessarily comparable to similarly‐named measures of other companies and may not be an appropriate measure for liquidity relative to other companies.
Year Ended December 31(1)
(in millions) 2014 2015 2016 2017 2018 2019
Operating Cash Flows $389 $544 $635 $519 $711 $1,064
Less: Operating Cash Flows ‐ Discontinued Operations — — 64 (4) (4) —
Operating Cash Flows from Continuing Operations $389 $544 $571 $523 $715 $1,064
Capital Expenditures 141 170 207 179 250 266
Less: Capital Expenditures ‐ Discontinued Operations — — 24 4 — —
Continuing Capital Expenditures $141 $170 $183 $175 $250 $266
Free Cash Flow from Continuing Operations $248 $374 $388 $347 $465 $798
Appendix 7 ‐Reconciliation of Gross Margin to Adjusted Gross Margin
Consolidated Adjusted Gross MarginThree Months Ended
December 31(1)Year Ended
December 31(1)
(in millions) 2019 2018 2019 2018
Gross margin $1,196 $1,162 $4,852 $4,575
Add: Restructuring expenses ‐ cost of goods sold 4 — 21 —
Adjusted gross margin $1,200 $1,162 $4,873 $4,575
Gross margin % 39.7% 38.7% 38.8% 38.5%
Adjusted gross margin % 39.9% 38.7% 39.0% 38.5%
(1) The sum of the individual components may not equal the total due to rounding.
We have presented adjusted gross margin solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate the operating performance of our continuing business across reporting periods and in analyzing our historical operating results. We calculate adjusted gross margin as gross margin plus restructuring expenses recorded in cost of goods sold. Adjusted gross margin provides insight into our operating performance and provides useful information to management and investors concerning our gross margins. We believe adjusted gross margin is used by investors, securities analysts and other interested parties in evaluating the operating performance of other companies, many of which present adjusted gross margin when reporting their results. Adjusted gross margin should not be construed as an alternative to gross margin, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report adjusted gross margin information calculate adjusted gross margin in the same manner as we do and, accordingly, our calculation is not necessarily comparable to similarly‐named measures of other companies and may not be an appropriate measure for performance relative to other companies.
Europe Adjusted Gross MarginThree Months Ended
December 31(1)Year Ended
December 31(1)
(in millions) 2019 2018 2019 2018
Gross margin $521 $523 $2,112 $1,896
Add: Restructuring expenses ‐ cost of goods sold 3 — 20 —
Adjusted gross margin $524 $523 $2,132 $1,896
Gross margin % 36.6% 36.7% 36.2% 36.3%
Adjusted gross margin % 36.8% 36.7% 36.5% 36.3%
